Are U.S. stock markets finally stabilizing after being plagued by extreme volatility in the last three months? The answer seems to be in the affirmative. Two major indexes – S&P 500 and Nasdaq Composite - are trending upwards for four consecutive trading days. Barring minor fluctuations on Tuesday, the Dow 30 index has also been largely trading in the green for trailing four days.
Robust labor market data for May, easing of trade war fears, tech stock boom and hike in the U.S. government bond yields resulting in gain for the banking sector are the primary reasons behind this encouraging performance of stocks. These positives are likely to remain constant in the near-term and consequently investment in momentum stocks with a favorable Zacks Rank will be a prudent move.
Indexes Moving North
On Jun 6, the Dow 30 closed at 25,146.39, after gaining 346.41 points or 1.4%. This was blue-chip index’s highest level of closing since Mar 12. Likewise, the benchmark S&P 500 closed at 2,772.35, up 0.9% reflecting its highest level of closing since Mar 12.
The teach-heavy Nasdaq Composite closed at 7,689.24, up 0.7%. The index also recorded its third consecutive all-time closing high after hitting a fresh record high for the first time in almost three months on Jun 4.
Robust Labor Market Data
On Jun 1, The Department of Labor reported that the U.S. economy added 223,000 jobs in May, exceeding the consensus estimate of 190,000. The unemployment rate declined from 3.9% in April to 3.8% in May, the lowest in 18 years. The decline in the unemployment rate indicates the extent to which the labor market has tightened. However, most economists think job additions will continue and that the unemployment rate will decline further. (Read more: Unemployment Falls to 18-Year Low: 6 Winning Picks)
Trade War Fear Eases
According to a report by ABC News, on Jun 4, the U.S. Treasury Secretary Steve Mnuchin urged President Donald Trump to exempt Canada from metal tariffs during a trade meeting. The U.S. government has imposed 25% tariff on steel and 10% on aluminum on Canadian imports since Jun 1.
Meanwhile, China has offered to purchase nearly $70 billion of U.S. farm and energy products if the United States refrains from imposing further tariffs on the country. Moreover, President Trump is scheduled to meet his North Korean counterpart Kim Jong-Un on Jun 12 in Singapore to reach an amicable solution about North Korea’s nuclear ambitions.
Bank Stocks Gain on Higher Bond Yields
On Jun 6, the yield on 10-year U.S. Treasury Note rose 5.9 basis points to 2.975%, its highest since May 24. The hike in U.S. government bond yield is a result of strong sell off of Eurozone bonds following a senior European Central Bank (ECB) official’s remark that the ECB remained on track to debate next week the timetable for ending its monthly bond purchase scheme.
Hike in bond yield was also supported by the market sentiment that the Fed will raise interest rate as labor market is tightening and wage growth will result in inflation. In May, wages increased by 2.7% year over year after remaining unchanged at 2.6% for three consecutive months. The slow increase in wage gains is also serving to cool inflationary fears.
The major gainer of a rate hike is the banking sector. Yesterday, the stock price of Bank of America, Morgan Stanley, Citigroup and The Goldman Sachs Group increased 3.2%, 2.2%, 2.2% and 1.7%, respectively.
Our Top Picks
A healthy labor market, gradual fading out of trade conflict and an impending rate hike along with a strong U.S. economy will help stock market bull-run to continue. At this stage, investment in stocks with strong earnings momentum will be lucrative. Our selection is backed by a good Zacks Momentum Score and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that stocks with a Momentum Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the Momentum-investing space. We have handpicked five such stocks with Zacks Rank #1 and Momentum Style Score of A.
The chart below depicts price performance of our five picks in the last one month.
Occidental Petroleum Corp. (OXY - Free Report) is an international oil and gas exploration and production company with operations in the United States, Middle East and Latin America.
Occidental Petroleum has expected earnings growth of 360.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 29.3% over the last 30 days.
Delek US Holdings Inc. (DK - Free Report) is a diversified energy firm focused on petroleum refining, marketing and supply of refined products, retail marketing of fuel and general merchandise.
Delek US has expected earnings growth of 230.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 32.5% over the last 30 days.
HollyFrontier Corp. (HFC - Free Report) produces and markets gasoline, diesel, jet fuel, asphalt, heavy products and specialty lubricant products.
HollyFrontier has expected earnings growth of 127.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 17.6% over the last 30 days.
Mellanox Technologies Ltd. (MLNX - Free Report) is a leading supplier of semiconductor-based, interconnect products to world-class server, storage, and infrastructure OEMs.
Mellanox has expected earnings growth of 90.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 6.6% over the last 30 days.
Expeditors International of Washington Inc. (EXPD - Free Report) offers its customers a seamless international network supporting the movement and strategic positioning of goods.
Expeditors International has expected earnings growth of 25.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.3% over the last 30 days.
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